Due to increased demand, the management of Rani Beverage Company is considering purchasing new equipment to increase their production and revenues. The useful life of the equipment is 10 years and the company’s maximum desired payback period is 4 years. The inflow and outflow of cash associated with the new equipment is given below: Initial cost of equipment: $37,500 Annual cash inflows: Sales: $75,000 Annual cash Outflows: Cost of ingredients: $45,000 Salaries expenses: $13,500 Maintenance expenses: $1,500 Question: Should Rani Beverage Company purchase the new equipment? Use payback method for your answer.
Due to increased demand, the management of Rani Beverage Company is considering purchasing new equipment to increase their production and revenues. The useful life of the equipment is 10 years and the company’s maximum desired payback period is 4 years. The inflow and outflow of cash associated with the new equipment is given below: Initial cost of equipment: $37,500 Annual cash inflows: Sales: $75,000 Annual cash Outflows: Cost of ingredients: $45,000 Salaries expenses: $13,500 Maintenance expenses: $1,500 Question: Should Rani Beverage Company purchase the new equipment? Use payback method for your answer.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Due to increased demand, the management of Rani Beverage Company is considering purchasing new equipment to increase their production and revenues. The useful life of the equipment is 10 years and the company’s maximum desired payback period is 4 years. The inflow and outflow of cash associated with the new equipment is given below:
Initial cost of equipment: $37,500
Annual cash inflows:
Sales: $75,000
Annual cash Outflows:
Cost of ingredients: $45,000 Salaries expenses: $13,500 Maintenance expenses: $1,500
Question: Should Rani Beverage Company purchase the new equipment? Use payback method for your answer.
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